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Macroeconomic scenario

Economic growth

Q3 GDP matched our expectations, but its structure did not. Paradoxically, the rebound in inventory formation makes it easier to assemble future GDP from constituent blocks. At the same time, the stagnation in consumption in Q3, even assuming that the final quarter brings a recovery, implies that consumption growth in 2024 and 2025 will be lower than previously assumed (ca. 3% in both years). While we keep our GDP forecasts unchanged, we acknowledge downside risks and adjust the structure.

Inflation

The year 2024 will end with CPI close to 5% yoy. Annual average at 3.7%. We will enter 2025 from a slightly lower level than previously expected due to the government decision on total freezing of electricity prices for households until at least September 2025. However, it will not protect from a jump in inflation in 1Q25 (with a peak in March above 5.5% yoy) due to the low reference base effect. In turn, at the beginning of the second half of the year, due to base effects, we will see a downward dip below 4% yoy. A nuisance (also for the MPC) will be "sticky" and long-term elevated core inflation (especially in the services sector). We will not return to the inflation target soon - in our opinion, this will not be possible before 2026.

Labour market

The labor market has recently been following the consensus, remaining on a fairly stable course - wage growth hovers around 10%, not wanting to drop below, while employment has been declining by 0.5% yoy for several months. The only recent surprise is the unemployment rate, which fell below 5.0%, mainly due to rounding. Labor market should remain in stabilization mode until the end of the year. The only possible change is a slight decrease in employment growth, to -0.6% yoy. Wages will still oscillate around 10%, and the unemployment rate should not change significantly in seasonally adjusted terms (although without seasonal adjustment the figure will probably reach 5.1% in December).

Fiscal policy

The final months of this year were supposed to be spent building up the budgetary financial cushion for 2025, thanks to an increase in the deficit from PLN 184 bn to PLN 240 bn as part of an amendment to the Budget Act. October fiscal data indeed showed an acceleration on the spending side, with budget expenditure reaching this year's record at PLN 22.5 bn. This turn of events indicates that the Ministry of Finance will realize its increased deficit appetite; the 184 bn deficit originally assumed for 2024 is now out of reach - after October, the annual sum of monthly budget deficits already amounted to PLN 179 bn.

Financial Markets

A perfect storm for the euro

• In recent weeks, nothing favored the euro:
• the US elections have boosted bets on a strong dollar,
• poor data from this side of the Atlantic have fueled bets on lower rates in Europe,
• as a result of these events, the market expects a divergence in the monetary policy of the Fed and the ECB,
• we have an increase in political (and somewhat fiscal) risk with an epicenter in Paris.

Consequently, EUR-USD has fallen from 1.12 at the beginning of October to around 1.05 today. Nothing on the markets is permanent, but it is currently hard to imagine a positive scenario for the European currency. The market is searching for a bottom on EUR-USD, and investors need to gain confidence that everything that needed to be priced in has already been priced in. A rebound in the euro would undoubtedly be engendered by positive surprises in macro data that would dispel some concerns about the prospects of European economies.
In the coming weeks, no breakthrough should be expected – we are entering the Christmas-New Year mode, when volatility and the willingness to take directional bets on the markets decrease considerably. Over the slightly longer horizon, we await the verification of consensus scenarios for the eurozone and the United States, as well as for the markets. In particular, this concerns the risky assumption, in our opinion, that the return of trade wars will be limited in scale and scope.

How Polish assets reacted to US elections 

A month after the US elections, we can assess our thesis that the market reaction was exaggerated to be partially justified. While the zloty remained relatively weak compared to the EM basket, the scale of the movement in domestic assets after the elections was small, especially compared to the 2016 elections, which are a natural point of reference. The FI market ultimately barely budged – the US elections were more of a pretext for profit-taking on short positions rather than a reason to sell Polish bonds. Bond yields are currently lower than before the elections, and Polish securities are not alone in this respect. While the 2016 elections represent an important milestone for the bond market, the 2024 elections have so far not brought lasting changes in global interest rates, term premiums, and expectations regarding further moves by central banks. Much ado about nothing? Pretty much – from the beginning, we were skeptical about whether the new political arrangement in the US would influence monetary policy in the way the market expects. In Europe, if anything, it should lead to lower rates.